Business context and reporting period
This is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The filing identifies the registrant as SkyPeople Fruit Juice, Inc., a PRC-focused producer and seller of fruit juice concentrates, beverages, and other fruit products. The request metadata names Future Fintech Group Inc.; the filing text does not explain that name difference.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $10.55m | $34.83m | $39.28m | $58.59m |
| Gross profit / margin | $3.90m / 37% | $10.15m / 29% | $16.18m / 41% | $18.38m / 31% |
| Operating income | $1.46m | $7.20m | $8.15m | $10.99m |
| Net income (loss) attributable to company | ($0.43m) | $4.56m | $3.16m | $5.12m |
| Basic and diluted EPS | ($0.02) | $0.17 | $0.12 | $0.19 |
For Q3, revenue fell 70% and operating income fell 80% year over year; the company reported a net loss, versus a profit in Q3 2014. For the first nine months, revenue declined 33% and attributable net income declined 38%. Gross margins improved in both comparisons, but lower sales drove lower gross profit.
Cash flow, balance sheet and liquidity
- Nine-month operating cash flow was $38.21m, versus $12.93m in 2014. Management attributed much of the cash increase to collections of receivables; accounts receivable fell from $66.57m at year-end 2014 to $17.38m.
- Investing cash outflow was $4.77m, compared with $37.12m in 2014. Financing provided $3.57m, compared with $8.26m of outflow in 2014. Cash and cash equivalents ended at $60.08m, up from $25.13m; restricted cash was $3.14m.
- Working capital was $34.80m, approximately unchanged from December 31, 2014. Current assets were $94.43m and current liabilities $59.62m.
- Total liabilities were $79.81m. These included $35.52m of short-term bank loans, $4.99m of current and $12.22m of non-current capital-lease obligations, and a $7.96m long-term related-party loan. The balance sheet reported no current notes payable at quarter-end.
- Management said cash, expected operating receipts and trade credit should cover operating needs for at least 12 months, excluding potential spending to expand production capacity. No off-balance-sheet arrangements were reported.
Material changes, outlook and risks
- Management attributed weaker sales mainly to unfavorable weather, including temperature changes and excessive rain, which reduced fruit supplies and delayed the squeezing season. Apple-related sales were largely absent; pear and beverage sales also declined. Beverage sales faced competition from online home-delivery providers and weaker in-store purchasing.
- Q3 revenue mix shifted: fruit beverages represented 76% of revenue and concentrates 24%, versus 56% and 37%, respectively, in Q3 2014. Q3 overall gross margin rose to 37%, helped by the mix shift, although beverage gross margin declined from 44% to 38% amid price competition.
- The RMB weakened during 2015. The company recorded a $8.17m foreign-currency translation loss in Q3 and $7.60m for the nine-month period, contributing to comprehensive losses despite positive nine-month net income.
- The business is seasonal and exposed to weather, volatile fruit prices and raw-material availability. Management described plans to expand Hedetang beverage distribution and develop higher-margin products; no quantified revenue or earnings guidance was provided.
- Large projects carry execution and funding uncertainty. The Mei County kiwi project’s trial production was expected at the end of 2015 or in 2016, depending on completion of a wastewater-treatment center. Yidu preparations were ongoing; the Suizhong project had partial facilities completed. The filing does not give a clear estimate of remaining funding needs or expected returns.
- After quarter-end, the company agreed to issue 5,321,600 shares to SP International, an entity affiliated with significant company insiders, at a stated $1.50 per share, subject to a possible upward price adjustment. The $7.98m purchase price was to be settled by cancellation of the related-party loan; unpaid interest would remain outstanding. The shares had not been issued as of the filing. Management reported no material litigation and concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the registrant’s identity and its relationship, if any, to Future Fintech Group Inc.; this filing names SkyPeople Fruit Juice, Inc.
- Check whether the related-party share transaction closed, the final purchase price, resulting dilution and remaining loan interest.
- Assess whether the substantial receivables collection and operating cash flow are repeatable, and review the quality and collectability of remaining receivables.
- Monitor fruit supply, weather, online-channel competition, RMB effects, and the company’s ability to fund planned projects and meet bank and lease obligations.